Executive Summary
Prediction-market competition is often measured by contracts listed or headline trading volume. Neither tells an institutional participant whether a market is actually usable. Spread, executable depth, resilience and the cost of moving size are more important measures of market quality.
Not All Volume Is Equal
A market displaying a one-cent spread with 100 contracts at the best price is very different from one where substantial size can trade without moving the probability several points. For institutional users, liquidity means the ability to enter and exit risk at a predictable cost, not simply the existence of activity.
Binary contracts also create unusual market-making problems. Risk can change sharply when new information arrives, related contracts may move simultaneously, and inventory accumulated in one market may not have a clean hedge elsewhere. The result is that the markets attracting the most user interest are not automatically the easiest markets in which to provide liquidity.
Exchanges Are Paying for Market Quality
Kalshi's designated market-maker programme offers qualifying firms benefits such as reduced fees and adjusted position limits in return for defined quoting and liquidity obligations. It separately operates liquidity programmes that reward resting orders according to factors including size, proximity to the reference price and two-sided depth.
Institutional execution is also moving beyond the public order book. Kalshi supports RFQs and block trades, allowing eligible counterparties to negotiate larger transactions away from the central book before reporting them to the exchange. That matters because an order book designed primarily around retail-sized flow is not automatically sufficient for institutional risk transfer.
Fragmentation adds another complication. Interactive Brokers now aggregates comparable markets across Kalshi, CME and ForecastEx and can route based on net price. That improves access for customers, but it also means exchanges increasingly compete not only for users but for where the deepest and most reliable liquidity forms.
PSG View
For prediction-market venues, liquidity is part of the product rather than an outcome that can be assumed once users arrive. An exchange that attracts superior market makers, concentrates capital and creates reliable execution can outperform a competitor with a larger catalogue but weaker markets. As venue competition increases, liquidity incentives and market-maker economics are likely to become an increasingly important part of exchange strategy.
The key question is whether liquidity concentrates on a small number of venues or becomes permanently fragmented. Aggregators and smart-order-routing technology could make fragmentation easier for customers while simultaneously reducing the value of owning the customer interface at the exchange level.
For informational purposes only. Nothing published by Prediction Strategy Group constitutes investment, trading or legal advice.